- Published on Wednesday, 29 August 2012 14:35
- Written by Andrew Snyder, Editorial Director, Insiders Strategy Group
- Hits: 536
The energy markets are changing fast. Stick with what used to work, and you'll quickly learn times have changed.
America's energy industry has more profit potential than any other sector. I love studying and investing in it. As with a fine wine or a top-end cigar, just as one flavor starts to trail off, another palate pleaser bursts wide open.
Take advantage of the energy industry's dynamic "taste," and you can make some serious scratch. The problem is... few folks have any clue what they're looking for. Just as so many wine drinkers can't tell the difference between a malbec and a merlot, most investors have no clue what moves the energy market.
This week's action is a good example.
The mainstream press is clamoring about "record high" gasoline prices this week. With the GOP partying in Tampa, Fla., folks are eager to paint a political picture.
It's Obama's fault... the right says.
It's proof we need more green energy... screams the left.
Time to tap the strategic reserve... the sheep belch.
They are all wrong. They've all been misled. Here's a quote from the mainstream press's default energy industry spokesman, Stephen Schork, that proves the point:
Given this administration's belligerent rhetoric against the oil industry, it's going to be very easy for Romney to pin the blame on Obama. The White House will be on the defensive. It makes an [Strategic Petroleum Reserve] release likely sooner, rather than later.
The truth, however, is far less sinister. The rise in gasoline prices is entirely removed from the ebb and flow of the crude market. I hate to tell you, but OPEC has nothing to do with this.
Sorry, Mr. Trump.
This latest surge in gas prices is all about the woes in the refinery industry. Here at home, over half-a-dozen plants in the path of Isaac have been closed. And in energy-rich Venezuela, the industry is still dealing with an inferno that destroyed a top refinery and killed nearly 50 people.
All of this to say the spike in prices at the pump is temporary. Make a long-term investment without the facts on your side, and you'll get burned.
The idea is even more important if we switch our view to the natural gas industry.
It's as I told Unconventional Wealthsubscribers last Friday: America does not have a natural gas industry these days. But we have one hell of an oil industry.
It just so happens that the oil industry spews out an awful lot of natural gas.
That is why I argue that $96 crude oil is very bearish for natural gas. With crude prices that high, oil producers don't care what price the market pays for their gas. They just want it out of their way so they can get to all of that black gold.
Here's what I wrote:
But because so many of America's oil wells also spew out huge amounts of gas, more oil drilling means more natural gas supply.
And now that oil prices are once again flirting with the $100 mark, you can bet the drills are turning fast. That means not only are domestic producers going to put more oil on the market... they're going to send a lot more gas through our pipelines, as well.
For the oil world, this is a fresh phenomenon. We're used to our oil and gas coming from separate, relatively uncorrelated sources. But now -- thanks to the Bakken and the Utica formations -- more oil production means more gas production.
Going back to our wine analogy, this is the "long finish" that catches so many investors by surprise. It's full of unexpected flavors and, if we experience too much, it will make us dizzy.
The idea that natural gas and crude are starting to trade inversely is not something most investors have caught on to. But the numbers prove the merit of our thesis.
Since Aug. 1, crude is up 9%.
Natural gas is... down 17%.
Just five years ago, this inverse correlation was considered ridiculous. Even a year ago, it was not clear. But today, it is obvious there is a direct relationship.
That's why the energy industry is so attractive for serious investors. It's always changing. And with every change comes a fresh opportunity to make money.
I'll toast to that!
Editor's Note: Congress, billionaire investors, and an oil tycoon -- I'm breaking a story that involves them all. It's all tied to H.R. 1380: The energy bill being "fast-tracked" through Congress so Obama can sign it ASAP. And no wonder -- you won't believe how Big Wigs have positioned themselves for major profits. The good news is I'm cutting you in, too. Get the full details here.
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